INM checking on rental units

INM checking on rental units

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I live in Mazatlan and one of our local groups has had an interesting discussion concerning INM visits. Apparently they have been visiting residents to check if they are renting and from whom. They are accompanied by a person from the tax department who is also checking if the owner of the property is paying taxes in the cases that they are renting out. It is the law that if you do rent your property you are required to pay taxes in Mexico.
Have any of you had this occur in your area?

roni_smith

Jun 29, 2009, 6:56 PM

Post #2 of 32 (6056 views)

Re: [Rosalinemg] INM checking on rental units

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I believe is is the law that you must pay taxes on rental and other income earned in Mexico from economic activities that happen in Mexico.
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morgaine7

Jun 29, 2009, 7:15 PM

Post #3 of 32 (6050 views)

Re: [Rosalinemg] INM checking on rental units

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I don't know of it happening in my area, but a few months ago I saw an announcement that renters in one part of Baja California were required by their INM office to provide a copy of the landlord's government ID when renewing their FM2 or FM3. This was supposedly to crack down on landlords not paying taxes on rental income.

Kate

Rosalinemg

Jun 29, 2009, 9:32 PM

Post #4 of 32 (6012 views)

Re: [roni_smith] INM checking on rental units

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Yes Roni, it is the law but unfortunately many people have been ignoring it for a long time. Of course you should pay taxes on any income earned here. I posted this as an inquiry as to if it is happening in other places, and also as a warning to others that there may be a possibility that sooner or later they may be audited. I have a feeling that it will have an impact on privately owned rental units. Many landlords will have to take into consideration the extra expense and up the rents. Also, in come cases, many units will be off the market because the owners will not want the hassle of dealing with Hacienda (Tax Dept). Also, if you have an FM3, I do believe that as a landlord is has to be stated on the visa?

roni_smith

Jun 30, 2009, 5:25 AM

Post #5 of 32 (5984 views)

Re: [Rosalinemg] INM checking on rental units

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"unfortunately many people have been ignoring it for a long time."

Do most property managers take care of this for expats who own and rent property through said property managers?

Do many rowners of vacation property have the rental money sent to a US bank to avoid reporting it as income in Mexico? I know that can be a convenience to renters, and I have paid for vacation rentals like before.

I'd like to hear from rental property owners who rent their property.
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Planning for Mexico Move Blog

(This post was edited by roni_smith on Jun 30, 2009, 5:33 AM)

Jun 30, 2009, 6:45 AM

Post #6 of 32 (5968 views)

Re: [Rosalinemg] INM checking on rental units

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This happened in Vallarta years ago--and may still be going on (I sold my condo, so I am not up to date on this). Our condo was being sued by hacienda for failure to pay IVA on the maintenance fees and I think owners were being investigated to see if they were renting out their units--and not paying the appropriate taxes. It was not an INM investigation, though. it was the tax authorities.

esperanza

Jun 30, 2009, 6:50 AM

Post #7 of 32 (5962 views)

Re: [gpkisner] INM checking on rental units

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The same thing happened at Lake Chapala, about eight years ago. Hacienda was on the prowl, looking for scofflaws--as well it should have been.

IMHO, the majority of foreigners who own rental properties do not pay taxes to Hacienda.

http://www.mexicocooks.typepad.com

roni_smith

Jun 30, 2009, 8:47 PM

Post #8 of 32 (5828 views)

Re: [esperanza] INM checking on rental units

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I think they should pay the taxes they owe. I do not favor people who evade taxes illegally. There may be a more polite way to put it, like scofflaws, but it is criminal. Could they get deported if caught?
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Planning for Mexico Move Blog

johanson

Jul 1, 2009, 9:09 AM

Post #9 of 32 (5765 views)

Re: [roni_smith] INM checking on rental units

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I have an extra house that is for sale in Ajijic. What happens if I let friends stay in the house if they pay all of the expenses, that way I would not be making a profit. I know by US standards, there would be no taxes to pay.

Would I need to report such usage to the tax authorities?

No I am not doing so now. My watchman stays in that house and watches over that house and the adjoining house where I now live.

Jul 1, 2009, 3:44 PM

Post #10 of 32 (5704 views)

Re: [johanson] INM checking on rental units

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Mexican tax law is even less "logical" than US (and probably Canadian) tax law. If you really want to check on this, you need to consult an expert--an accountant.

tepetapan

Jul 2, 2009, 2:15 PM

Post #11 of 32 (5612 views)

Re: [roni_smith] INM checking on rental units

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We pay 15% tax on our rental units....seemed pretty high but the family accountant checked it out. He pays all fines, etc. if he makes a mistake and has been very good at what he does. Income is income and there is tax due, just like Canada nad the USA. Best to find an honest accountant, pay the tax and sleep well at night.

Gringal

Jul 3, 2009, 7:37 AM

Post #12 of 32 (5525 views)

Re: [tepetapan] INM checking on rental units

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A friend has a small upstairs apartment which she rents out. Sometimes it stays vacant for months with no takers, since it's not in a desirable section of town. She inquired about the taxes and was told that she would be charged fees as though it were rented for 12 months, whether it was or was not rented.

Egad ! Is this true, or was she misinformed?

tepetapan

Jul 3, 2009, 10:11 AM

Post #13 of 32 (5504 views)

Re: [Gringal] INM checking on rental units

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From what our accountant said you only pay on the income. if it is sitting empty there is no tax due. i guess that´s why we pay the accountant, to find the best way available.. Now my wife did set up the rental units as a business , may be that is the difference.

Jul 7, 2009, 3:00 PM

Post #14 of 32 (5285 views)

Re: [tepetapan] INM checking on rental units

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From what I read before, a landlord must have a Hacienda license before he rents the property. To apply for the license is fairly expensive, time consuming and getting it is not guaranteed. Many foreigners, especially real estate property management companies, require rent to be paid in U.S. dollars which usually means checks drawn on U.S. banks. They mail these checks back to the U.S. to avoid paying the tax. One company in Ajijic was caught mailing more than $10,000 through FedEx a few months ago and had to pay a fine. I don't know if it was ever turned over to the Hacienda.

As a foreigner, I wouldn't want to rent property without all the correct licenses. The Hacienda rent tax was reported as being 25%. That does not include the additional income tax.

Congressman Charles Rangel is under investigation for not paying income tax on rental property he owns out of the U.S. Something else a U.S. landlord might want to look into.

Marlene

Jul 7, 2009, 6:57 PM

Post #15 of 32 (5251 views)

Re: [PamelaDelafield] INM checking on rental units

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'Hacienda" is the department collecting taxes. There is no cost to sign up to pay your taxes. Accountants are inexpensive. Foreigners do need to have an endorsement on their FM3 (or FM2) as part of the process and there are fees payable for Immigration process to approve "lucrative" activities.

(This post was edited by Marlene on Jul 7, 2009, 6:58 PM)

mazbook1

Jul 7, 2009, 6:59 PM

Post #16 of 32 (5246 views)

Re: [PamelaDelafield] INM checking on rental units

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Pamela, Although your 25% is too high (between 15 and 17 percent is correct), your conclusions are correct. Cheat the government out of its legally due taxes and you'll eventually get caught.

The permission from Hacienda is fairly simple to get and FREE. If you have some lawyer or accountant do it for you, yes, it's going to cost you some money. What is difficult (more of a giant pain in the neck) and expensive is that you FIRST must have the endorsement from Migración allowing you to do the business.

Jul 8, 2009, 3:46 AM

Post #17 of 32 (5202 views)

Re: [mazbook1] INM checking on rental units

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I don't have rental property so being a landlord is not a concern to me. I was citing what several people posted on the SMA site and some of them said that getting a Hacienda license to be able to rent property was not a guarantee and they had to pay a fee up front when they applied. The 25% tax rate came from those writers. I assumed that they looked into it and had some idea about the complexities of a license and the tax rate. One said it caused her to decide not to rent anymore.

jennifer rose

Jul 8, 2009, 5:57 AM

Post #18 of 32 (5186 views)

Re: [PamelaDelafield] INM checking on rental units

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Hacienda does not issue licenses to rent property. Hacienda collects taxes.

What SMA site are you citing? Who were those posting? Do you believe everything you read online, or just what you read first?

Jul 8, 2009, 8:32 AM

Post #19 of 32 (5148 views)

Re: [jennifer rose] INM checking on rental units

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Thanks for waking people up Jennifer--I am constantly astounded how people living in Mexico function on rumor and hearsay! Are people the same back in the USA? Maybe I have been away from there too long to remember.

Jul 8, 2009, 7:34 PM

Post #20 of 32 (5065 views)

Re: [jennifer rose] INM checking on rental units

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In Reply To

Thanks for such a polite reply. I normally check out things that are of interest to me, i.e., things that actually involve me. I rent. I am not, nor am I going to be a landlord. Since I have no future in being a landlord I repeated what a woman from the SMA site wrote to me. Maybe she is one of those people who lies just for the sake of lying. I don't know. She told me that she wanted to rent a house and after she checked with the Hacienda, through her attorney, she was told that she needed a Hacienda license. In the U.S. many business need permission of some sort to operate. She said that an upfront fee was required and there was no guarantee that the permission would be granted. She decided not to rent. Maybe her lawyer lied to her. That isn't unusual. I know as a non-attorney pro-se I've beaten almost every lawyer I been up against and that is all the way to the state's highest civil court and in several federal courts. Your charming reply made me remember how much fun that was.

Marlene

Jul 8, 2009, 11:02 PM

Post #21 of 32 (5038 views)

Re: [PamelaDelafield] INM checking on rental units

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Several of us have posted that the Hacienda doesn't require a "license". It is the tax department. They welcome us with open arms! The permission you speak of comes from the Immigration department. Not a complicated issue which would require lawyers. If she really wishes to pursue it, an accountant can easily walk her through the process.

(This post was edited by Marlene on Jul 8, 2009, 11:07 PM)

Jul 9, 2009, 5:22 AM

Post #22 of 32 (5017 views)

Re: [Marlene] INM checking on rental units

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I don't know the woman and don't care whether she pursues being a landlord or a dog trainer. If you are interested, go to the SMA site and share your information with them. The Hacienda came down hard on SMA a few years ago finding tax scofflaws by reading local rental ads and contacting landlords. Many people decided not to continue renting or at least not to be publicly advertising.

ncferret

Jul 9, 2009, 7:19 AM

Post #23 of 32 (4987 views)

Re: [PamelaDelafield] INM checking on rental units

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I own rental property in Mazatlan (a condo). Here is how it goes:

1. First you go to immigration to get a special endorsement on your FM3. It costs around $100US. You must have an accountant endorse your request.

2. You go to SAT (Hacienda) and get registered as owning rental property. They don't ask for specific addresses and no permits are issued. You simply make an appointment, fill out a form, and sign some papers. Took about 20 minutes.

3. You file your taxes monthly. If the unit is NOT furnished you pay about 17%. If the unit is furnished, you pay the 17% AND you must pay the 15% IVA tax.

4. At the end of the year, your accountant will do an annual declaration which will report the income & taxes. You should owe nothing.

5. You pay taxes on rental income only when you collect it. It doesn't matter if that income is in US dollars or where the monthly rental is paid. If the property is located in Mexico, you pay taxes in Mexico on that property.

6. If you are a US citizen, you must also report this income to the IRS. Unless you earn a high income in the US, you will not likely have to pay any additional taxes as your expenses & taxes in Mexico will offset your tax liability in the US.

7. When you sell your Mexican rental unit, again you must report the sale to the IRS and pay the appropriate capital gains taxes - if there are any.

The process is straight forward and not very time consuming nor expensive. I pay my accountant 300 pesos a month to handle the paper work in Mexico. Worth every centavo!

Jul 9, 2009, 9:52 AM

Post #24 of 32 (4955 views)

Re: [ncferret] INM checking on rental units

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That's probably what the woman on the SMA forum was describing when she wrote that she had to file for permission to rent. If I read your post correctly, a furnished rental ends up being more that the 25% I thought it was.

I wonder if any expat landlords in the Chapala area are paying the taxes and reporting income to IRS?

Jul 9, 2009, 11:18 AM

Post #25 of 32 (4927 views)